A group of companies has settled civil and regulatory issues relating to alleged bid rigging in the sale of insurance. A District Court has approved a settlement whereby Zurich Financial Services, Zurich American Insurance Company, Steadfast Insurance Company, Fidelity and Deposit of Maryland, Empire Fire and Marine Insurance Company, American Guarantee and Liability Insurance Company, Empire Indemnity Insurance Company and Assurance Company of America have settled all claims in a pending MDL action, and also settled with numerous state attorneys general and insurance departments. In re: Insurance Brokerage Antitrust Litigation, Case No. 04-5184/MDL No. 1663 (USDC D.N.J. Feb. 16, 2007). Details of the settlement, which will cost the companies over $200 million, may be found in a Memorandum In Support of a motion seeking approval of the settlement.
Arbitration / Court Decisions
Tenth Circuit adopts arbitral immunity doctrine
In an appeal from an award in an NASD-sponsored arbitration, the Tenth Circuit has joined virtually all other Circuits in recognizing that arbitrators, arbitral forums and arbitral sponsors are immune from liability for actions taken in connection with administering arbitration. Pfannenstiel v. Merrill Lynch, Pierce, Fenner & Smith, Case No. 04-1274 (10th Cir. Feb. 20, 2007).
Court orders production of documents regarding reinsurance of similar risks
In an action seeking reinsurance for trucking risks, in which the reinsurer alleged that the reinsurance had been placed in breach of various binding guidelines and agreements, a magistrate judge granted, in part, a motion to compel the reinsurer to produce documents relating to its underwriting process and declination of other trucking risks. The Court believed that the documents were discoverable to rebut the reinsurer's position. Scottsdale Insurance v. American Re-Insurance Co., 8:06-cv-00016 (D. Neb., Feb. 2, 2007)
Silence Deemed Insufficient to Preclude Aggregate Liability
In a matter that is difficult to describe briefly, an arbitrator has entered an award in an interesting reinsurance claims issue, and the award has been confirmed. Gerling Global Reinsurance Corporation (“Gerling”) issued a certificate of facultative reinsurance to Employers’ Surplus Lines Insurance (“Employers”) reinsuring an Excess Umbrella policy providing for $5,000,000 per occurrence and aggregate losses. When Gerling refused to pay its pro rata share of certain indemnity and defense costs, Employers demanded arbitration to enforce the certificate. Gerling argued that a non-concurrency existed between the facultative certificate and the umbrella policy with regard to the aggregate liability and liability for defense costs. Gerling argued that the absence of the word “aggregate” in various sections of the certificate precluded consideration of aggregate limits of liability and that its reinsurance limits applied strictly on a per-occurrence basis. Gerling also argued that it was not required to reimburse Employers for the defense costs associated with the settlement because the “follow the settlements” clause in the certificate was subject to the condition that an indemnity payment must be made on a specific claim before any defense costs attached. Gerling argued that this language was non-concurrent with Employers’ ultimate net loss liability theory. While the arbitrator acknowledged that the presumption of concurrency is “not absolute and can be overridden by clear language of limitation in the certificate,” this was not such a case. The arbitrator concluded that the absence of the word “aggregate” was insufficient to preclude liability, stating that “silence, as an expression of limitation, strains credulity and is insufficient to preclude aggregate liability.” The arbitrator also noted Gerling’s failure to use any of the methods available to it to limit aggregate liability, such as including the phrase “Nil Aggregate” in the certificate or by adding an endorsement. With respect to liability for defense costs, the arbitrator concluded that Gerling misinterpreted the “follow the settlements” clause and that the concept of “ultimate net loss” contained in the Employers’ policy was entitled to the presumption of concurrence. As such, Gerling was responsible for its share of the defense costs. Employers’ Surplus Lines Insurance Co. v. Global Reinsurance Corp., Case No. 07-30 (USDC S.D.N.Y. Jan. 11, 2007).
Appellate opinions confirm arbitration awards
Three recent appellate opinions confirmed arbitration awards:
- The Eighth Circuit reversed a District Court Order, remanding for confirmation of an arbitration award. The District Court had vacated the award on the basis that the Panel's finding that California law applied, and its dismissal of a claim under the Minnesota Franchise Act, violated a fundamental public policy of Minnesota. The Court of Appeals reversed, finding that the applicable standards under the California and Minnesota franchise statutes were virtually identical. Twin Cities Galleries, LLC v. Media Arts Group, Inc., Case No. 06-1777 (8th Cir. Feb. 9, 2007).
- On January 27, 2006, the Sixth Circuit entered an opinion affirming the decision of a District Court vacating an arbitration award on the basis that the award did not draw its essence from an applicable collective bargaining agreement. However, in an en banc opinion, the Court has overruled the appellate panel, reversing and remanding for the entry of an Order confirming the arbitration award. The basis for the reversal rested upon findings that: (1) the arbitrator was not charged with fraud or dishonesty in making the award; (2) the arbitrator was arguably construing the contract in the award; and (3) the party challenging the award showed nothing more than an error or a “serious error” in the arbitrator's interpretation of the contract. Michigan Family Resources, Inc. v. Service Employees International Union, Case No. 04-2564 (6th Cir. Jan. 26, 2007).
- The Appellate Division of the New Jersey Superior Court has affirmed summary judgment against an arbitration claimant in a case arising out of an automobile accident. An arbitrator dismissed the claim based upon a failure of proof and failure to prove causation. An appeal was denied under the applicable appeal rules of the American Arbitration Association. The claimant then filed a Complaint in Court, contending that the respondent in the arbitration had committed fraud. The court granted summary judgment, finding that to be potentially viable, a fraud claim must allege fraud on the part of the arbitrator rather than a party, and that the Complaint was not timely filed. The appellate panel affirmed. Brown v. CSC Insurance Services, Docket No. A-2283-05T5 (Jan. 22, 2007).